Beware of varying a contract

A contract can be varied either orally or in writing. However, most contracts will contain what’s called a variation clause which will specify that any variation will only be valid if it is in writing and signed by the parties.

In the case of C&S Associates UK Limited v Enterprise Insurance Company Plc which was heard by the High Court at the end of 2015 the Court had to decide, amongst other things, whether an agreement had been effectively varied by email correspondence.

C&S Associates was a motor insurance claims handler who brought a claim for wrongful termination against the insurance company, Enterprise.

Initially C&S Associates and Enterprise were on good terms and there was an exchange of emails between them where C&S Associates sought to agree an increase in its fees and to vary the duration of the agreement.

However, the agreement between C&S Associates and Enterprise contained a clause which stated that: “Any variation of this Agreement shall not be effective unless made in writing and signed by or on behalf of each of the Parties to this Agreement.”

Had the Agreement been varied by the email correspondence?

The Court found that the variation clause was intended to ensure that a party would not be bound by oral communications or informal written documents that were not signed.

However, it also decided that the clause did not require manuscript signatures, paper documents or both parties’ signatures to be on the same document and that an electronic signature such as an email auto-signature would be adequate.

Provided the emails could satisfy the other requirements of contract variation, such as an intention to be bound, then there would be a valid variation.

In this case, the Court found that objectively the parties clearly did intend to be bound by the exchange of emails, despite the fact that they also clearly contemplated that their agreement would subsequently be recorded in a formal contract. Accordingly, the contract had been validly varied.

Given the extent to which business is carried out by email nowadays, even if there is a formal contract with a variation clause, an exchange of emails using email signatures can vary that contract.

If the parties wish to prevent this from occurring then the contract will need to stipulate specifically that any variation to the contract will only be effective if it is in writing and signed by the parties and that “in writing” does not include emails.

At Blacks, we can assist you with all aspects of contractual matters from drawing up the contract to enforcing it if there has been a breach.